FAR Case 2023 008: The Proposed Rule on Prohibiting Certain Semiconductor Products and Services

Government contractors should be aware of a proposed FAR rule implementing FY 2023 NDAA Section 5949 that will prohibit the use of certain covered semiconductor products and services in federal procurements by December 23, 2027. The rule introduces new certification, disclosure, and supply chain review requirements that may significantly impact sourcing, compliance, and contract performance.

Highlights

• Proposed FAR Rule. The FAR Council issued a proposed rule under FAR Case 2023 008 to implement FY 2023 NDAA Section 5949, introducing restrictions on certain semiconductor products and services in federal procurements.
• Effective Date. The prohibition is scheduled to take effect on December 23, 2027, with comments due by April 20, 2026, establishing a defined timeline for contractor preparation.
• Scope of Prohibition. Federal agencies will be prohibited from procuring or using electronic products and services that include covered semiconductor components tied to designated foreign entities, with broad applicability across contract types and acquisition thresholds.
• New Compliance Requirements. Contractors must conduct reasonable supply chain inquiries, certify compliance, disclose nonconforming items, and report identified issues within 72 hours, increasing documentation and oversight expectations.
• Operational Impact. The rule introduces significant supply chain risk and sourcing challenges, particularly for contractors relying on multi-tier suppliers, and may require vendor changes, product redesign, and early planning to maintain contract eligibility.

The Federal Acquisition Regulatory (FAR) Council issued a proposed rule under FAR Case 2023‑008 to implement Section 5949(a), (b), (c), and (h) of the Fiscal Year (FY) 2023 National Defense Authorization Act (NDAA). The rule would prohibit federal agencies from procuring, renewing, or extending contracts that include covered semiconductor products or services and is effective December 23, 2027. The deadline for comments is April 20, 2026.

The proposed rule is intended to strengthen procurement practices by prohibiting the acquisition of “covered semiconductor products or services,” defined as certain electronic components, products, or services associated with high‑risk foreign entities. Beginning December 23, 2027, federal agencies will be prohibited from procuring or obtaining:

• Electronic products or services that include covered semiconductor products or services and
• Electronic products, for use in critical systems, that use electronic products that incorporate covered semiconductor products or services.

The proposed rule does not include a list of critical systems. They will be identified by the Federal Acquisition Security Council or the Department of Defense.

What Qualifies as a Covered Semiconductor Product or Service?

Semiconductors are small electronic components that play a critical role in both the U.S. economy and national security. They enable a broad range of technologies, including consumer electronics, automobiles, data centers, critical infrastructure, “and virtually all military systems.” A covered semiconductor product or service includes:

• Semiconductors;
• Semiconductor products;
• Products that incorporate a semiconductor product; and
• Services that utilize a product that is designed, produced, or provided by a semiconductor or semiconductor product.

Any semiconductor product or service that is designed, produced or provided by a covered entity is prohibited. Covered entities are foreign companies identified as national‑security risks under Section 5949 of the FY 2026 NDAA. These include the following foreign companies, their subsidiaries, affiliates or successors:

• Semiconductor Manufacturing International Corporation (SMIC);
• ChangXin Memory Technologies (CXMT);
• Yangtze Memory Technologies Corp (YMTC); or
• Any company identified on the Department of Commerce website as an entity of a foreign country of concern.

Semiconductors are embedded in nearly all modern technology and capabilities. That means most contractors, directly or indirectly, will be impacted by the prohibition.

New FAR Requirements

The proposed rule introduces a new FAR section, FAR 40.20X Prohibition on certain semiconductor products and services, which provides contracting officers with instructions on acquiring electronic products or services that contain prohibited covered semiconductor products and services. To implement these requirements, the rule adds a new solicitation provision and contract clause:

• FAR 52.240-XX Certification Regarding Certain Semiconductor Products and Services
• FAR 52.240-YY Prohibition on Certain Semiconductor Products and Services

The proposed rule states that this prohibition applies to all contract types, including commercial products and services, and to purchases made under the Simplified Acquisition Threshold (SAT) and micro-purchase thresholds. The FAR 52.240-YY clause has been added to FAR 52.244-6, Subcontracts for Commercial Products and Commercial Services, and FAR 52.213-4, Terms and Conditions Simplified Acquisitions.

The inclusion of micro‑purchases is particularly significant. Many electronic products and services acquired at the micro‑purchase level support mission‑critical government programs. While FAR 13.201 was updated to state that the prohibition applies to micro-purchases, there is not a required flowdown. The prohibition is also applicable to commercially available off-the-shelf (COTS) products.

As a result, this requirement is not a discretionary purchasing preference. It is a mandatory compliance obligation that will affect contractors of all sizes and across all sectors of the industrial base.

Contractor Requirements Under the Proposed Rule

The proposed rule establishes several key compliance requirements for government contractors. To meet the requirements, government contractors must:

• Conduct a reasonable inquiry to determine whether any proposed products or services include or rely on covered semiconductor products or services.
• Certify that a reasonable inquiry was completed and that your offer does not include any covered semiconductor products or services.
• Disclose to the Government any known products or services that do not comply with the prohibition.
• Notify the contracting officer in writing within 72 hours if covered semiconductor products or services are identified during contract performance.

The proposed rule includes a safe harbor provision. Government contractors may receive protection from civil liability if they provide timely notification to the Government upon discovering covered products or services and take appropriate steps to identify, remove and replace the covered products or services.

What is a “Reasonable Inquiry?”

Under the proposed rule, government contractors must conduct a “reasonable inquiry” into their supply chains to determine whether any products or services include covered semiconductor products or services. While the term is defined in FAR 52.240‑YY as information in your possession, including any information acquired from external sources, the practical government expectations go beyond a simple internal file review. FAR part 40 highlights several actions government contractors may need to take:

• Consult the Department of Commerce website for entities of concern.
• Review supplier and manufacturer websites for product‑level semiconductor information.
• Use supply‑chain AI-driven technology to trace component origins.

And if the government contractor still cannot confirm whether a vendor/subcontractor’s product contains a covered semiconductor product or service, they must:

• Request that suppliers conduct their own reasonable inquiries and complete the certification required under FAR 52.240‑XX.

This will be challenging for companies with multi-tier subcontractors or products purchased through distributors, which do not manufacture the components they sell. Distributors may need to obtain additional information from original equipment manufacturers to determine whether their products contain covered semiconductors, which adds time and uncertainty to the process. Realistically, distributors will be reluctant to sign a certification themselves, so they will push the responsibility back to the manufacturer.

Are There any Exceptions to the Proposed Rule?

Yes, the proposed rule includes several important exceptions that limit the scope of the prohibition. In particular, federal agencies are not required to:

• Remove or replace products or services that contain covered semiconductors prior to December 23, 2027;
• Limit the use of covered semiconductor products or services throughout the lifecycle of equipment acquired before December 23, 2027, including replacement components, spare parts and support services;
• Prohibit commercial products and services when no alternative sources are available;
• Prohibit commercial services except for Information Technology and Telecommunications services, which remain subject to the restriction; and
• Apply the prohibition to electronic services incidental to contract performance (e.g., payroll services).

Waivers

The proposed rule allows limited waiver authority, but those waivers are subject to time constraints and will be difficult to obtain. The head of an agency may waive the prohibition for a narrow time, up to two years per waiver, and the waiver may be renewed.

An agency waiver may be granted when:

• No compliant alternative exists at reasonable prices and
• Issuing the waiver is not expected to compromise critical national security interests.

The Secretary of Defense, Director of National Intelligence, and the Secretaries of Commerce, Homeland Security, and Energy may also issue waivers when they determine that doing so is in the critical national security interest of the United States.

Takeaways

Government contractors should carefully review the proposed rule and submit comments by the April 20, 2026 deadline. This includes a review of the new solicitation provision and clause, the available exceptions, requirements for conducting a reasonable inquiry, certifications required at the time of offer, and disclosure obligations, including the potential liability for failing to report known covered semiconductor products or services.

Government contractors should begin sooner rather than later:

• Reviewing supply chain vendors and subcontractors to identify products or services that may contain covered semiconductor parts to prevent noncompliance. This includes vendors and subcontractors providing a service that requires them to use a covered semiconductor.
• Reviewing the requirements in the provision FAR 52.240-XX Certification Regarding Certain Semiconductor Products and Services and contract clause FAR 52.240-YY Prohibition on Certain Semiconductor Products and Services to attest that their products and services are free of covered semiconductor components.
• Reviewing existing contracts and upcoming renewals to ensure continued compliance as the prohibition becomes effective.
• Planning for potential cost impacts, including shifts to compliant suppliers, redesigning products and qualification costs to eliminate prohibited components.

The compliance deadline, December 23, 2027, is approaching quickly. If alternate sources must be identified or qualified, the lead time can be significant. Early action will be essential to avoid disruptions in contract performance and maintain eligibility for government contracts.

Redstone Government Consulting experts assist government contractors in understanding how evolving requirements, such as restrictions on covered semiconductor products and services, affect their contracts, supply chains, and overall compliance responsibilities. This includes helping organizations interpret new requirements, assess how they apply to existing and future contracts, and align internal processes, documentation, and  compliance practices to support certification, disclosure, and ongoing contract performance. Our team also provides software consulting, operational support, and training services to help organizations align with regulatory requirements, improve processes, and reduce the risk of audit findings or compliance gaps.

Frequently Asked Questions (FAQs)

• What is this proposed rule about? This proposed rule would prohibit federal agencies from purchasing or using certain semiconductor products and services tied to specific foreign entities. It is intended to address supply chain and national security concerns within federal procurements.
• Who does this apply to? Government contractors providing products or services to federal agencies. Semiconductors are in many technologies, so even those not making electronic components may be impacted.
• When does this take effect? The rule is currently in the proposal stage, with a planned compliance date of December 23, 2027. Contractors have time to evaluate how the rule may affect their contracts and supply chains.
• What will contractors need to do? Contractors will need to review their products and supply chains to determine whether covered semiconductor components are included. This may involve gathering information from suppliers and confirming compliance when submitting offers.
• What is a reasonable inquiry? A reasonable inquiry means reviewing information available to the contractor to determine whether covered semiconductor products or services are present. This may include checking supplier information, product details, and other accessible sources.
• Why does this matter for government contractors? These changes affect how contractors review suppliers, assess risk, and ensure contract compliance. Lack of understanding may increase compliance risk or disrupt contracts.